Miners scrap dividends as falling prices hit

RhiannonHoyle

SYDNEY--Several of Australia's biggest mining companies are intensifying cutbacks by axing dividends to investors, in a move that underscores how few in the industry expect global commodities demand to recover any time soon.

Whitehaven Coal Ltd. (WHC.AU) and nickel producer Western Areas Ltd. (WSA.AU) on Tuesday became the latest companies to suspend payouts to shareholders after both swung to an annual loss in the year through June, hurt by sharply lower commodity prices as China's economy cools.

Mining companies are aggressively slashing costs to protect profits, laying off thousands of workers and freezing spending on major projects earmarked to meet future Asian demand for resources. The deepening of the slowdown poses a risk to Australia's economy, which sidestepped the financial crisis in 2008 largely due to the strength of its mining industry. According to the government, economic growth in the current financial year will likely fall below historical trends while unemployment is tipped to rise.

"The market can be pretty harsh on any company that breaks its dividend stream," said Sydney-based John Payne, who manages a global resources fund for AMP Capital. "But at the end of the day, a dividend should only be paid if a company can afford it. You don't want to be paying it out of debt."

Shares in Western Areas, Australia's third-largest nickel producer, fell 10% after the company suspended its dividend for a year in which nickel prices plunged to their lowest level since 2009. Falling Chinese demand for the industrial metal used to make stainless steel, and rising supply from new mines, have weighed heavily on prices.

Whitehaven Coal said it didn't expect any improvement in coal prices over the coming year, as supply from new mines coming online alongside weak demand in Europe and the U.S. exceeds higher Asian imports.

Prices of coking coal, used to make steel, and thermal coal that's burnt to generate power have fallen 34% and 7%, respectively, since the end of June last year. Sydney-based Whitehaven, whose market value has halved over the same period, said the impact of persistent weakness in coal prices on its earnings prompted its board not to pay a final dividend.

"Our expectation is that we will pay a dividend" in future, said Paul Flynn, Whitehaven's chief executive. "But our policy states we must be making profits to pay a dividend."

Other companies have taken similar action. Australia's largest listed gold miner, Newcrest Mining Ltd. (NCM.AU), scrapped its dividend earlier this month as it looked to conserve cash at a time when investors were losing faith in gold as a so-called safe-haven asset.

Newcrest, worth more than A$10.5 billion, made the move after reporting the biggest annual loss in its history.

Once the darlings of stock markets around the world, gold miners have been hurt by a steep slide in the price of the precious metal since the start of the year. The sudden halt to a decadelong bull-run in the gold market has led many mining companies to slash spending, close mines, lay off workers and scale back executive pay.

Some mining-services firms have also had to suspend payouts to shareholders, as they try to cope with the sharp slowdown in investment. Boart Longyear Ltd. (BLY.AU), the world's biggest provider of drilling services for the mining sector, Monday said it wouldn't pay an interim dividend as it described trading conditions as the worst since the global financial crisis.

AMP's Mr. Payne said he expected miners to start reinstating their dividends from next year, as commodity prices stabilize and balance sheets strengthen.

"The market is going to be far more discerning as to whether these companies are even attractive if they aren't getting a proper return," he said. "The question is how quickly the market starts voting with its feet if it thinks these companies are just pouring money into the ground."

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